Currency Crisis

Currency traders in Europe, worried about the prospects of losing jobs once the euro -- the single European currency -- is launched at the end of the next year, can take heart. Several emerging market currencies, the Thai baht and the Czech koruna in particular, have provided enough action, drama and volatility in recent weeks to keep trading desks busy, and have the potential to replace intra-European currency trades that would vanish with the expected monetary union in Europe.

The first speculative attack on the Thai currency took place in February this year. At that time, with heavy intervention, the Bank of Thailand managed to hold parity. The baht is linked to a basket of currencies with 80 per cent weight to the US dollar. In the wake of the February experience, the Bank of Thailand quickly put in place a cooperative agreement with other central banks in south east Asia to assist each other and provide resources for intervention. The Hong Kong Monetary Authority was also roped in.

 

None too soon. Last month, speculation against the Thai currency once again gathered momentum following the crisis in the financial sector (see World Money, May 19, 1997). This time around, for a while, the Bank of Thailand could not maintain the exchange rate within its +/- 0.02 baht band around the central rate, despite heavy intervention in the currency market in which other central banks too joined in. The Singapore and Hong Kong monetary authorities as also the Malaysian central bank bought the baht